An Introduction to financial literacy, by Courage Msimanga
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By Courage Msimanga, the Exec Director @SHIELD FOUNDATION
Robert Kiyosaki in his book "Rich
dad's guide to investment" shows how 80% of the wealth in the world is
owned by 20% of the population and the
other 80% of the population has to survive off of the remaining 10%. This is
simply because many of us never really
invested in our financial literacy. Many at times we focus on making money,
attaining financial security and living comfortably and neglecting the key
incremental element of life and that is financial independence. Also, for those
to try to invest in their financial education, the majority still suffers with
financial discipline, we are taught how to make money and save but no
institution teaches how to spend money.
Financial discipline refers to how well you
are able to conform your spending and saving to the plans that you have set for
yourself. It is a continuous process and it evolves as your priorities change
over time. It is also based on the understanding that money is just a tool and
that you control your money, money should not control you.
The first step to create a financial plan
is to set goals for yourself. What is it you want to achieve? so you will need
to keep that in mind as you set your financial goals. How much do you need to
save You need to have something clear to work towards.
After establishing goals, you will then
have to develop a personal budget. Financial success begins with creating and
adhering to your budget because it will give you a clear picture of how much
money you are receiving and how you spend it, therefore, allowing you to make
smarter decisions with your finances. As you make your budget, identify all
sources of income and all your financial responsibilities, both fixed and
variable. Your fixed expenses are items such as rent, insurance, internet bills
among others and these are often easy to track because they stay the same each
month. Variable expenses are items such as groceries, entertainment, dining and
fuel. You can track these by reviewing all your receipts or bank or M-pesa
statements. Once you have a clear picture of what you spend money on,
categorize them so that you understand what eats up most of your income, and
what expenses you can eliminate.
Now comes the difficult part: building
discipline. We live in a generation of instant gratification and it is hard to
deny yourself certain luxuries. However, if you want to be stable financially,
you must learn to curb your urge to spend. If you want an item you had not
budgeted for or were not planning to buy and it is not a need, you can try the
‘wait three days’ rule and if the urge still persists then you can look into
buying the item. Moreover, you need to forget about what other people have and
live within your means. Trying to keep up with what your peers have will only
leave you drowning in debt as you try to afford a lifestyle you cannot
maintain. You also mentioned being generous and quick to lend anyone who
borrows money from you. Kudos to you. It is a good trait to be kind and help
people, but this should not be limitless, especially as you end up broke by the
middle of the month. As you prepare your budget, set aside a percentage of your
income for aid and charitable works and use that to lend to people. You should
also learn to say no except when it is absolutely necessary.
Finally, invest... you work very hard for
your salary, so why not get the most use out of it? Investing helps your money
grow over time. It also enhances your discipline by guiding you to set a
certain amount periodically. It is advisable to take out the money for your saving
goals before even paying your bills. From your budget, you can establish what
you are able to save on a monthly basis. As a rule of thumb, you should use the
50/20/30 rule to save. This entails spending 50per cent of your salary on
essential expenses like housing and food, 30per cent on discretionary spending,
and 20per cent for your savings or investments. Money market funds are a good
place to start your investment journey, because you can start with as low as $1,000 and you stand to earn interest of up to 11per cent.
Financial discipline takes time, energy and sacrifice to master, but your future self and family will be grateful you learnt it
Financial discipline is a must for any
organization and for entrepreneurs is no exception. It is necessary to have
positive cash flows and budget expenses so that funds are routed to focus on
revenue generating departments such as Product development, Sales and Marketing
etc.
With a regulated spending pattern and a
monthly budget plan, entrepreneurs can drive strategies to achieve business
goals and growth.
Let’s explore the benefits of financial
discipline in business...
1. No Unplanned Expenses
You should be able to say ‘No” to
unnecessary expenses. Since the budgetary allocation for each major expense is
already identified, your job becomes smooth. Preference should be given to all
the essential items such as salaries, office operation expenses, software
licenses (if any). Once all these expenditures are accounted for, based on the
gravity of the situation, new expenses can be proportioned for under the said
budget.
2. Ensures Optimum Inventory
Purchase of inventory should also follow a
strict schedule. It is advised to plan a list of monthly inventories so that
nothing goes unused. Also, it is always better to first use up the stock from
the previous month before placing any fresh orders. In this way, the stock does
not get accumulated and is timely used.
This financial discipline ensures that you
do not stock the items beyond the required level.
3. Maintains positive cash flows
Maintaining positive cash flows is very
important to ensure uninterrupted operational activities. When you stick to the
prescribed monthly budget and expense patterns, your cash flow remains intact.
This way of financial planning will offer you a leeway in meeting any
unforeseen emergency expenses.
4. Aids in achieving the Targets
While preparing the budget estimates, you
could link the targets connected to the specific expenses. You can set
pre-defined monthly budget allocations. In case of any mismatch between targets
and estimates, you can set automatic alerts to help you keep a track of the
commercials.
5. Helps in your Vision
Every entrepreneur will have a vision for
the startup. The strategy for executing the targets is difficult without
financial discipline. The periodical review of the financial position vis-à-vis
the targets extends an opportunity for a corrective measure. If necessary you may
take a modified route in achieving the objective set forth.
some benefits include...better negotiation
skill....also improves efficiency
To wrap up....
Thus, financial discipline in the initial
few months of business will eventually take you a long way in terms of growth.
An entrepreneur with financial discipline will be able to keep both the product
and the employees happy and satisfied
Well articulated 👏👏👏
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